Preparing to pass the business to the next generation is often seen as one of the biggest challenges facing the family business, resulting in changes both for the family and the business. In addition, there are issues that need to be faced such as the fact that the current leader is getting older, and getting closer to ‘death’ which is a topic that is not often up for discussion, and there is the matter of the next generation waiting in the wings, some willing and able to take the helm and others quietly hoping that they will never be asked. Sadly, doing nothing does not make the succession challenge disappear as it will inevitably happen one day. So, it is not easy to plan for succession due to the emotional and relationship aspects that need to be addressed, but successful family businesses mitigate the risk to both the family and the business by planning for the future and therefore being in a position to address the topic in a much more rational and business-like manner. As Howard Hackney, family business consultant and experienced family business adviser explains, “Succession planning should always be on the agenda for any business and cannot really start early enough. Businesses that plan to succeed reduce the risk of problems further down the line.” “Although it does not eliminate the risks completely, holding a rational, sensible conversation about what the business needs from the leader going forward and evaluating this against the potential in the next generation in a clear and practical manner, undoubtedly provides a greater platform for success going forward.” With that in mind, the succession planning process can be broken down into seven key steps, helping to engage the next generation in the conversation: 1. Preparing Attitudes It is important that the next generation understand the nature of the business, and the values that are important too. Many of these will be derived through contact with the family business as they grow up, summer work experience, listening to conversations, visits to the office etc and these are important so that they gain a feeling for ‘what the family business is all about.’ 2. Entry Into The Business Clearly, the next generation need to want to work for the business, have the right skills and competencies and entry into a role in the family business will provide them with this opportunity. It is important that they enter a role for which there is a need and are not simply recruited as they are related and there needs to be a clear job description and role for them, just as there would be for any other new inductee. It is also important to ensure that they are given the necessary training, orientation and assistance in developing relationships within the business with other employees, managers and directors too. 3. Developing Their Understanding Once the next generation have gained a footing in the business and are performing a role, the next stage in the succession planning process is to develop and cultivate the skills required to lead the business in the future. Initial understanding can be derived internally but external inputs may assist in the process through mentoring, leadership programmes and university educational programmes too. 4. Leadership Development As the next generation get older, and the existing generation have aged too, there will be a period when the leadership skills of the next generation are developed, preparing them with the skills that may be required to run the business in the future. 5. The Selection Process Selecting the next person to run the business is not an easy decision, and there may well be more than one candidate to consider from within the family as well as outsiders. It is important that the selection process is clearly understood by all concerned and that the process is adhered to in order to reduce the risks going forward. The process may involve selection by the incumbent, the family executive team, the board of directors or general consensus between the family, board and executives. 6. Transition Once the successor has been appointed there will be a period of transition where they become involved in the strategic decision making processes and the development of their own management team too. Over a period of time, key relationships are transferred and naturally the incumbent will do less and the successor will do more. 7. Starting Again Although unlikely to commence straight away, when it comes to leadership of the family business, succession planning should always be on the agenda and consideration should always be made to the next generation and developing the leaders of the future. As Howard explains, “All too often family businesses leave the decisions until it is too late – the incumbent passes away suddenly and the next generation are left to pick up the pieces, at a time when they are emotionally hurt and grieving and planning in advance can help to reduce the burden at that time.” “Furthermore, failure to address the issues on a timely basis may result in the next generation forging a career outside of the family firm and then decide that they don’t want to come back to the family business so communication between the generations is vital to ensure the right outcome overall, for the family and the business.” Succession planning does not happen overnight but clear and open communication over the years can certainly help to provide a framework within which to operate, with everyone knowing where they stand and understanding what the business needs and the skills that the next generation need to lead the business going forward too.

According to recent research from Barclays Wealth, 40% of the UK’s high net worth individuals do not trust the next generation to protect their inheritance. Key Findings include: 37% of wealthy Britons have experienced family conflict as a result of family wealth Earned, as opposed to inherited, wealth is key to financial happiness 40% of the UK’s high net worth individuals do not trust their children and stepchildren to protect their inheritance The report, The Transfer of Trust: Wealth and Succession in a Changing World, is based on a global survey of more than 2,000 high net worth individuals. It provides an in-depth examination of wealthy individuals’ attitudes towards wealth transfer and succession planning, as well as offering insight into what the future holds for the next generation. Interestingly, it reveals how wealth in many cases can act as a double-edged sword, leading to distrust and conflict. Globally, developed countries display higher levels of uncertainty when it comes to trusting their children and stepchildren to look after their wealth. Respondents in Australia (59%), North America (61%) and Europe (62%) show lower levels of trust in their children and stepchildren when it comes to money management and protecting their inheritance, in comparison to the Middle East (78%), Africa (77%) and Latin America (75%). Experts featured in the report have partly attributed this lack of trust in the future generation to the changing structure of many UK families. As second and third marriages become more common, this is thought to lead to more complex relationships with both children and stepchildren in relation to wealth and inheritance planning. David Semaya, Head of UK and Ireland Private Bank, Barclays Wealth, said: “This report provides an in-depth study into the attitudes of high net worth individuals towards succession planning. It is clear that with wealth comes an increasing complexity of choice, and in some cases this can result in concerns about trust and conflict when considering the inter-generational transfer of wealth. Understanding options for succession planning in advance, and seeking professional advice can help address these fears and provide confidence that your wealth will be wisely managed in the future.” Wealth, Happiness And Family Dynamics Parents want to pass on their material wealth to their children, as well as a roadmap for a happy life, but the report reveals some interesting paradoxes about inheritance and succession. Source of wealth is seen as a key determinant of financial happiness, with earned wealth much more likely to result in happiness than inherited wealth. However, wealthy respondents in the UK remain committed to passing on their wealth, with 94% of respondents intending to do so. However, an unfortunate drawback of wealth is its ability to cause conflict – and in the context of succession – family conflict. The report reveals that 37% of wealthy individuals in the UK have had direct experience of family wealth leading to disputes. Accentuating this conflict, the report reveals that the risk of disinheritance increases in line with wealth for high net worth individuals in the UK. Whilst five per cent of those with wealth levels of between £1m and £2m have disinherited someone or cut a family member out of their wills, this rises to 13% among those with more than £10m. Catherine Grum, Director, Wealth Advisory, Barclays Wealth, commented: “In the case of wealth that has been inherited, tensions around entitlement may lead to disputes. However, it is surprising just how many wealthy respondents report experiencing such conflict and the impact that source of wealth can have on this, with wealthier respondents more likely to have encountered such conflict.” Despite all the potential tensions associated with succession and wealth, the report shows that the UK’s high net worth individuals remain committed to passing on their assets to the next generation, with only six per cent of UK respondents believing that this should not be the case. Globally, 60% of respondents say that they require a significant level of professional advice when deciding on an inheritance plan for their children and stepchildren, emphasising the need for expert advice to guide them through this decision-making process.

Family businesses are certainly not immune to difficult economic times. But they usually have more options than publicly owned corporations. Let me share with you what some of my clients are doing to not just survive, but thrive, even in today’s business climate. A recent online Gallup article entitled “Building Engagement in This Economic Crisis,” quotes its chief scientist of workplace management, James Harter, Ph.D., saying, “In bad times, employee engagement is the difference between surviving or not.” But how does a family business keep employees focused and motivated? Rather than lay employees off (which reinforces the message of fear and uncertainty), many companies use downturns to create their own “stimulus package” to grow their businesses. Expand in a shrinking economy? Sounds impossible. But that’s just when you need your employees’ most creative thinking and loyalty. A policy of no layoffs in tough times (and I have clients who manage to do this) makes it clear to everyone that we are in this together. Another of my clients involves key employees in brainstorming sessions to create new opportunities for the company. This is not “make work” but truly helps the company take a fresh look at what its customers need and how to better meet those needs. The brainstorms have produced several ideas for new opportunity. Enthusiasm replaces hand-wringing. Positive attitude maintains an environment for growth and possibility. Think how strong that company will be when economic prospects do improve! A business plan is an excellent template for discovering new opportunity. Most family businesses don’t have a formal business plan. They can get by without it during the good times, but in difficult times operating without a plan is needlessly punitive. Formalising the business strategy sets you up for new options and renewed profitability. An effective planning tool I am familiar with for small to medium sized family businesses is the Jack Tesmer Institute’s Quick Plan; part on-line survey and part face-to-face discussion. The process helps focus the business on the market to evaluate your approach, organisational readiness and profitability. Another possibility is to work with a traditional business planner, such as John Pope, who works with family businesses to create a formal business plan. With a strategic business plan in hand, you have a better understanding about what to do, how to do it, when, with whom and at what cost. It could not only help you weather the current storm, but prepare you for an even brighter future. All of this discussion is about the business side. But what about the family side in rough times? Stress rises when any business struggles and it can go stratospheric within business families. Now is the time to reinforce and strengthen the family’s commitment to the business. Hold regular family meetings aimed at building emotional equity of your family and bond the family team. Family businesses traditionally spend a lot of time, money and energy building the financial equity of their business. In tough times as well as in good times, it is equally important—if not more important—to building the emotional equity of the family. Emotional equity in the family is the emotional connection, the emotional reserve and the sense of belonging we all need to get through the stress of tough times. Remember to celebrate family rituals and traditions. Keep up informal get-togethers where father and sons or brothers and sisters meet over a cup of coffee to support each other through stresses. One of the most difficult topics for any family to discuss is money. Start a series of family meetings that focus on money, on the family’s values regarding money, and money management and spending. Make sure your family’s behaviour is aligned around your family values. In a recent client meeting, a grandfather expressed his concern that stock market losses meant he could no longer continue to fund his grandchildren’s education at the current level. The grandparents were reluctant to raise the topic in the family. By not doing so, they were inadvertently creating tension within the family. Once the topic was on a meeting agenda the family was able to discuss and resolve it. Stress plummeted all around. Tough economic prospects do not automatically mean paralleling tough emotional and financial prospects. Opportunities can be found. Involve your employees and the entire family through family and company meetings. Share, brainstorm, and envision the future. It’s not a diversion, it’s an embrace that will certainly help the family and likely help the business. managing growth. About the Author - Tom Hubler continues his long-standing dedication to helping families of wealth and family-owned businesses succeed. He helps families develop a shared vision for the family and for the business; identify individual talents; tackle any unspoken issues; and create individual and organisational strategies to ensure a personally and financially rewarding business with a wealth preparation plan that ensures family values continue to emphasise a family culture of gratitude, philanthropy and purposeful living. www.hublerfamilybusiness.com